The price of crude oil rose further Thursday exceeding $68 per barrel, its highest since May 2015, supported by unrest in Iran and raising concern about risks to supplies, cold weather in the United States boosting demand, and output cuts led by the Organisation of Petroleum Exporting Countries (OPEC).
The development, which will increase the Nigerian government’s oil revenues to fund the 2018 budget, will however, hurt the country’s finances via petrol imports and mounting demands by oil marketers for subsidy payments.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu told THISDAY in a recent interview that the recent petrol scarcity in the country originated from the high cost of crude oil in the international market, saying that while the country wants more revenues from its crude, it is difficult for petrol to be delivered at the fixed price of N145 a litre at the same time.
This is just as he informed the Senate Thursday that the ad hoc presidential committee on petrol scarcity that has been mandated with determining the feasibility of retaining the pump price of petrol at N145 per liter and may explore a plural pricing model.
Reuters reported that six days of anti-government protests in Iran, OPEC’s third-largest producer, have added a geopolitical risk premium to oil prices.
The unrest has not, however, affected production or exports from Iran.
Brent crude, the international benchmark, went up to $68.27 per barrel yesterday before coming down to $67.90 a barrel.
U.S. crude also rose to $61.86 and also touched the highest since May 2015.
Freezing weather in the U.S. has spurred short-term demand, especially for heating oil.
Apart from the spike in May 2015, oil is trading at its highest since December 2014 – the month after a historic decision by OPEC to stop cutting output to prop up prices deepened a price collapse.
OPEC, supported by Russia and other non-members, began to hammer out a deal to cut supplies again in 2016, aiming to get rid of a supply glut that had built up in the previous two years and boost prices.
The supply cut pact started a year ago and compliance has been high, aided by involuntary output declines in Venezuela, whose economy is collapsing, plus unrest in Nigeria and Libya.
Producers decided to extend the deal for the whole of 2018.
OPEC’s cuts are helping to reduce inventories around the world and in the U.S., crude stocks fell by five million barrels in the latest week, the American Petroleum Institute said on Wednesday ahead of the government’s supply report due later yesterday.
Balancing the trend towards a tighter market is higher production in the U.S., where the OPEC-led effort to push prices up is spurring more shale oil output.
The U.S. government forecasts that 2018 average oil production will hit a record high.
The rising cost of crude in the international market will boost the Nigerian government’s efforts to fund the 2018 budget but would hurt the country’s finances via petrol imports.
The 2018 budget was premised on an oil benchmark price of $45 per barrel, with a production estimate of 2.3 million barrels per day, including condensates, as against that of 2017, which was put at $42.50 per barrel and output at 2.2 million barrels per day.
Kachikwu told THISDAY that it will be difficult for the federal government to enjoy more revenue from crude and at the same time sell refined products at a fixed price.
“Like I always say, in this portfolio, you carry two luggage: the first one is that the nation wants more revenue from its crude. So, I worked with OPEC to deliver that.
“But then the nation also wants delivery of refined products at a fixed price. So, sometimes, it is difficult,” he explained.
With the rising price of crude, the Nigerian National Petroleum Corporation (NNPC), which currently is the sole importer of petrol, bears the loss of selling petrol at N145.
Panel to Decide on Petrol Price
Meanwhile, Kachikwu has informed the Senate Committee on Petroleum (Downstream) that the ad hoc committee set up by the presidency on Tuesday to provide solutions to the perennial petrol shortages in the country will determine the feasibility of retaining the pump price of the commodity at N145 per liter and may explore a plural pricing model.
This is as the Senate committee backtracked on publicly questioning officials of NNPC on mounting subsidy debts arising from the differential between the landing cost of N171 per liter for petrol and the pump price of N145.
Kachikwu who spoke during his submission at the public hearing held by the Senate committee on the recent fuel shortages in the country, said the price review was one of the terms of reference of the committee.
Kachikwu added that the committee, which was constituted by President Muhammadu Buhari following the crippling fuel scarcity that plagued the country during the Christmas season, was working within an 18-month window to address the crisis and will avert any recurrences.
Within the period, the issue of pricing differential between the landing cost of N171 per liter and the pump price of N145 would be addressed, he said.
“What the disparity means is that those individuals who are in the business without the obligation that NNPC has to meet national supply, would not bring in products if they are going to sell at a loss.
“If we are going to sell at N145, then we need to put mechanisms in place to accommodate this N145 so that the private sector can go back to importing,” he said.
The minister blamed the recent fuel scarcity on the diversion of products, logistics issues due to the diversion, insufficient reserves and the supply gap largely because the private sector pulled out from importing, and enforcement.
“Whatever we do, given the logistics constraints of NNPC to do 100 percent supply and the over-arching burden on the institution, we need to free the marketers to do their business. So we must address the pricing issue,” he added.
Kachikwu further explained that at the time approval was granted to peg the price at N145 the exchange rate was N285 to the $1.
“Today it is N305, so even at a minimum, there is a gap there. Today if you walk to the CBN (Central Bank of Nigeria) to do a modulation of what exchange rate we need to sell at N145, it is about N340, it’s not N285, it’s not N305.
“So one mechanism would be working with the CBN on an exchange rate that enables them to stay at N145 pump price. If we do that, then they can import without the issue of the price differential. And we can modulate that as the exchange rate and international prices move up,” the minister said.
The presidential ad hoc committee is also considering tax incentives for oil marketers, he disclosed.
“These individuals pay taxes. Is there a possibility to capture some of the tax they pay, to account for some of the differentials in importation that they would have before they pay their taxes? So it becomes a cost of the business.
“We are also looking at the potential of whether we could theoretically respect the N145 price and have a plural pricing system? So NNPC and all its stations and affiliates sell at the N145 so that the pricing is respected, and at the same time, private marketers are able to import their products and sell at another price.
“So, it’s for an individual to decide that he wants to buy from NNPC, or go to a private marketer, and it does not cost anything other than the trading loss NNPC would be carrying,” the minister further explained.
He, however, assured the Senate committee that the price movement would be the last consideration of the presidential committee and would only be done as a last resort.
Kachikwu also emphasised the need to ensure the enforcement of regulations guiding oil marketing, as lax enforcement in the country had led to the smuggling of petroleum products to neighbouring countries where the pump prices are higher.
“We have not been able to police our borders well, but the reality is that some of these economic diversion issues, some of them carry as much as life imprisonment.
“We must dig these up and make marketers take responsibility for every liter of fuel that leaves their depots and goes to the filling stations.
“Once you have sold, you have sold, whatever happens to it, you do not know. Trackers must be in place in every truck that lifts products in this country.
“All the people in the whole chain should be made to take responsibility. If you want to export products from this country, it must be done legally and attract the prices for export,” he stated.
Kachikwu also harped on the need to deal with the infrastructure deficit issues including broken pipelines. This, he said, could be handled through emergency funding.
“This crisis would not arise if NNPC is able to pump products around the country in a jiffy. Trucking does not solve our problem, so we have to be looking at rail transportation, trucking and substantially be looking at piping.
“If we cannot repair our pipelines at the speed at what we want, we need to bring in the private sector, concession some of these pipelines and put them to use, so that in moments of emergency, we do not encounter these problems.
“In moments of normalcy, we are fine, in moments of emergency, our system is not geared to the level of speed for delivery,” he said.
He stated that in the long term, the refineries must be fixed and private sector establishment of refineries must be encouraged.
In his presentation, the Group Managing Director of NNPC, Dr. Maikanti Baru said the request seeking the National Assembly’s appropriation to pay the oil marketers’ the backlog of unpaid subsidy bills was before the lawmakers.
The money being owed is N800 billion, according to the Depot & Petroleum Marketers Association of Nigeria (DAPMAN).
Baru said: “They also complained that they have a lot of outstanding subsidy debts with government from their past transactions which have not been paid, and they had bought the fuel when the exchange rate was much lower.
“The exchange rate has now changed to further expose them, the interest has built up, so they are in a difficult position. They cannot get any credit lines from the banks.
“We as NNPC, with the minister, have strived to take it up with the Ministry of Finance, which has also gotten the appropriate approvals from Mr. President.
“This has been with the National Assembly, we understand, for almost two months for appropriation, so that they can be paid.”
The NNPC boss added that during the recent fuel crisis, 4,501 trucks bearing petrol were unaccounted for and diverted.
He said the scarcity was first triggered by rumours borne in the media on an impending price increase, the resultant panic buying, and then a one-day strike by members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN).
His position on the appropriation request was however countered by the lawmakers who insisted there was no such request, either by virement or a supplementary budget bill before them.
In attendance at the hearing, which lasted for five hours, were the representatives of Department of Petroleum Resources, Independent Petroleum Marketers Association of Nigeria (IPMAN), Major Oil Marketers Association of Nigeria (MOMAN) and other stakeholders in the industry.
However, indications that the Senate committee may have soft-pedaled on its initial threat to grill NNPC on the management of the subsidy debt emerged when Marafa, at the opening of the hearing, said presentations and questions should be limited to the recent fuel scarcity itself.
In the course of the hearing, Senators Tayo Alasoadura, Mao Ohuabunwa and Albert Bassey raised questions bordering on the source of the funds being used by the NNPC to cover the differential between the landing cost and the pegged price of N145 per liter.
Marafa, however, urged the NNPC boss to respond to questions other than the subsidy backlog.
“There are questions asked bordering on subsidy and I don’t want us to derail. The essence of this sitting is not on whether there is a subsidy or no subsidy, so answer the questions as far as they affect the supply of fuel.
“Questions bordering on who is shouldering the subsidy burden should be dropped for this purpose. What we want are issues of supply, where the gaps are and how we can address this problem,” Marafa ruled.
Senator Phillip Aduda, the vice-chairman of the Senate committee, however, maintained that it was necessary to clarify if there was a subsidy regime in place or not.
But Marafa interrupted Aduda and explained that he (Aduda) was outside the meeting room when he (Marafa) ruled that questions on subsidy would not be tackled at the hearing.
“We will set another time for them to come and discuss the issue,” he said.
Aduda, however, insisted that the question should be dealt with, prompting Marafa to rule him out of order.
Marafa also instructed Kachikwu not to respond to a question from Senator Hamman Misau on whether as Minister of State for Petroleum, he has direct access to President Muhammadu Buhari.
“That is your internal issue. It is diversionary and not related to this hearing,” Marafa said.
There was also some mild drama at the hearing when three persons claimed to be presidents of IPMAN.
Obasi Lawson, Sanusi Fari and Okoronkwo Chinedu all introduced themselves as IPMAN presidents when Marafa asked the oil industry operators to introduce themselves at the beginning of the hearing.
Reacting, Marafa said while the development showed democracy at work in the association, the Senate committee would not be dragged into their internal crisis.
He therefore ruled that the chairman of the IPMAN Board of Trustees, Mr. Aminu Abdukadir, would speak on behalf of the association.
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